The Market for Common Stock
by MaestriSome companies are so small that their common stocks are not actively traded; they are owned by only a few people, usually the companies’ managers. Such firms are said to be privately owned, or closely held, corporations, and their stock is called closely held stock. In contrast, the stocks of most larger companies are owned by a large number of investors, most of whom are not active in management. Such companies are called publicly owned corporations, and their stock is called publicly held stock.
As we saw in Chapter 1, the stocks of smaller publicly owned firms are not listed on a physical location exchange or Nasdaq; they trade in the over-the-counter (OTC) market, and the companies and their stocks are said to be unlisted. However, larger publicly owned companies generally apply for listing on a formal exchange, and they and their stocks are said to be listed. Many companies are first listed on Nasdaq or on a regional exchange, such as the Pacific Coast or Midwest exchanges. Once they become large enough to be listed on the “Big Board,” many, but by no means all, choose to move to the NYSE. One of the largest companies in the world in terms of market value, Microsoft, trades on the Nasdaq market, as do most other high-tech firms. A recent study found that institutional investors owned more than 60 percent of all publicly held common stocks. Included are pension plans, mutual funds, foreign investors, insurance companies, and brokerage firms. These institutions buy and sell relatively actively, so they account for about 75 percent of all transactions. Thus, institutional investors have a heavy influence on the prices of individual stocks.
Taken From : Five-Minute MBA – Corporate Finance
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